An unenforced wastewater tax could make the city of Spokane richer - off the backs of neighboring towns

The Spokane County Regional Water Reclamation Facility, on Freya Street, has become a potential cash cow for the city of Spokane — and a source of conflict with other local governments. - DANIEL WALTERS PHOTO
Daniel Walters photo
The Spokane County Regional Water Reclamation Facility, on Freya Street, has become a potential cash cow for the city of Spokane — and a source of conflict with other local governments.

Think of it as the bureaucratic equivalent to stumbling across a winning lottery ticket stuck in a sewer grate, though Spokane City Councilwoman Candace Mumm doesn't put it in quite those terms.

"We found a piece of paper in a copier tray," she says.

But that piece of paper — an "unfinished business" memo from former City Administrator Theresa Sanders referencing an unenforced tax — could result in millions of dollars being added to Spokane's coffers every year.

On the other hand, it could also take millions from small-town taxpayers and ignite a legal war between the city and Spokane County officials.

It had been right under the council's noses this entire time. Since 2005, Spokane city code has said that any utility business operating a "public wastewater collection and treatment system" inside the city would be charged 20 percent of gross income in taxes. The city of Spokane's own wastewater treatment facility near Riverside State Park has been paying this kind of tax for decades. For city residents, that's meant that beyond simply shelling out enough utility taxes to keep the plant running, they've been paying into the city's general fund as well.

But in 2011 — at the opposite end of town, but still within city limits — Spokane County had opened its own wastewater treatment facility. And despite the city's law, the county hasn't paid the city a dime of those wastewater taxes.

"The people outside the city limits have had a tax holiday for pretty much a decade," says Mumm. "And that probably needs to be addressed."

From the way several members of the council see it, the city law doesn't just allow the city to tax the county; it requires it. The city has to apply the law equally.

"It sort of would be like if we didn't collect taxes from the Subaru dealer in Spokane, but we collect it from the Lexus dealer," says City Council President Breean Beggs.

Start enforcing the tax, and Spokane's general fund would have $6 million to $8 million extra to spend each year. But fortune for one city would mean misfortune for others. The costs would be passed onto other utility customers of the county wastewater treatment plant, like those in the cities of Spokane Valley, Liberty Lake and Millwood.

"Close to 90 percent of the county's wastewater reclamation facility is serving Spokane Valley citizens," says Ben Wick, Spokane Valley's mayor.

Imagine how hard a suddenly imposed 20 percent tax on utilities would hit the Central Valley School District, he says.

"The members of the Spokane City Council — they see dollar signs," says Spokane County Commissioner Josh Kerns. He sees the proposal to enforce the tax as "textbook taxation without representation."

This month, Spokane Mayor Nadine Woodward convened leaders from Spokane, Spokane County and other impacted local towns to discuss the issue. But they quickly found they lacked clear answers to basic questions: Why did the county build their plant in a spot that exposed them to city taxes? And why had the city never enforced it?

Answering these questions could be crucial in the fights ahead.

"We'll go do whatever we can to protect our taxpayers," Kerns promises. "If that means legal action, then that means legal action."

WHO KNEW?

Spokane County officials knew the politics of sewage could be messy. After all, this wasn't the first time that the city of Spokane and Spokane County went to war over sewer pipes.

Starting in 2003, a battle erupted between the two governments over the amount the city was charging the county to treat the sewage coming across city borders.

The feuding parties finally reached a legal settlement in 2007, with an agreement that started with a big payment from the county to the city and then slowly whittled down the amount of utility taxes the county would pay over the next 15 years.

Yet that deal only applied to the city's Riverside plant. Back then, Spokane County Regional Water Reclamation Facility hadn't been built yet.

But with seemingly impossible new environmental standards looming and the city's Riverside treatment plant unable to handle the sheer quantity of crap a growing population would soon be flushing their way, local governments were scrambling to bring another plant online.

"As a region we were pressed up against the wall with regard to running out of capacity," former County Commissioner Todd Mielke recalls. "Everybody was panicked by that."

Spokane County Environmental Services Director Kevin Cooke says that when choosing a location for their new plant, the county focused on factors like elevation and proximity to high-capacity sewer lines — all considerations that didn't "have much to do with whether it's in the city of Spokane or not."

That's how they landed on North Freya, at the site of a former cattle market, in East Spokane's industrial core and just barely inside Spokane city borders. While Cooke wasn't director back then, he says he doesn't believe the department expected the choice of location could expose the county to a tax hike from the city. When the Inlander asks whether the county's past conflict with the city — along with an eagerness to work together — may have caused the county to dismiss the possibility of a future confrontation, Cooke agrees.

"I think we were weary of the battle," Cooke says. "I don't think anybody anticipated that we would be arguing about it again."

Mielke, however, says the possibility of city officials applying the 20 percent tax to the county's facility did come up briefly — almost as "a blip" — during discussions with former Spokane Mayor Mary Verner's administration before the plant was built.

"We had a very spirited dialogue about that. We felt that was just a financial grab," Mielke recalls. "We did talk about how we felt it was not right for them to be taxing county residents."

But ultimately, Mielke says, Verner's administration was more interested in working to improve the region's environmental infrastructure than getting a bit more tax revenue.

Mayor David Condon, who defeated Verner in 2011, could have tried to tax the county's new treatment plant as a way to achieve his promise to keep utility taxes low. But instead, multiple former officials from the Condon administration tell the Inlander that his team put the county wastewater facility taxation question on the backburner rather than risk damaging the relationships with other local governments.

"We spent a lot of my career trying to build cooperation and trying to build partnerships, and we got a heck of a lot of things done because of that," says Rick Romero, the city's former utilities director. "Given the fact that we were trying to build cooperative government projects, it didn't seem like something I wanted to push."

It's not something that the current mayor, Nadine Woodward, wants to push either.

"Her nature is to collaborate first," city spokesman Brian Coddington says.

But with the way the city's law reads, she might not have much of a choice.

THE CODE WAR

Despite the many years of detailed contracts or memos between the city and the county about the Spokane County Regional Water Reclamation Facility, Cooke says he isn't aware of any written agreement with the city over how it will — or won't — tax the facility.

"I think if there was, this would be a much simpler matter," Cooke says.

click to enlarge Candace Mumm - YOUNG KWAK PHOTO
Young Kwak photo
Candace Mumm

By contrast, the city code appears to be clear. There are a few exceptions built in. In 2009, for example, a City Council that included now-County Commissioner Al French cleared the runway for an annexation by excluding the Spokane International Airport's businesses from utility taxes. But there's no exemption for the county's treatment plant.

But if the problem is the city code, Commissioner Kerns argues, then the city can change the code. Why not carve out an exception for the county?

The councilmembers haven't exactly leaped at that opportunity, arguing that any change needs to be fair for everyone.

"These kinds of things need to be equally assessed," Councilwoman Mumm says.

But other local leaders counter that it's absurd to pretend like the city "taxing" itself — which they see as little more than sending funds to one city budget page instead of another — is anything close to equivalent to one city taking money from the citizens of another. After all, a similar tax is levied on the Avista power company, but in that case, only Spokane residents pay it.

"You can collect on your taxpayers, but you shouldn't collect on our taxpayers," says Millwood Mayor Kevin Freeman.

Yet Beggs, the council president, argues that Washington state Supreme Court rulings give the city the power to do just that and actually, if they don't enforce it, they could be sued by their own taxpayers.

Spokane City Councilwoman Lori Kinnear says the city's legal department is saying that enforcing the tax is a necessity.

Instead of fighting it, Kinnear says, the region should come together to agree on the best way to spend the revenue.

Last year, the council voted to levy a one-tenth-of-1-percent sales tax to raise $5.8 million a year for affordable housing, but only if the city couldn't find another source of revenue by April 1 — like, say, the new wastewater plant revenue. By now, that deadline has passed, and the new sales tax is taking effect, but the City Council is looking for opportunities to use the millions of wastewater tax revenue.

"We could partner with the county or the city or the Valley on a mutually agreeable project. ... We could reduce everybody's utility tax," Kinnear says. "Right now, we're trying to get past the anger from those who don't want this to happen."

In theory, Freeman says that he's open to the idea of using a wastewater tax for regional projects as long as there's a clear connection to the utility — like using it to reduce stormwater runoff or clean up the river.

"[But] if you, as the city of Spokane, are saying, 'We're going to tax this plant because it's there and we can,' then I have heartburn," Freeman says.

But to county commissioners, it's a lot worse than heartburn: It's something that could unravel years of city-county collaboration.

"I worry about whether we are going to be able to maintain a cooperative relationship when one jurisdiction starts to talk about levying tax on another," Commissioner French says. "That's a problem. That very well could be the straw that breaks the camel's back."

Meaning?

"Litigation," French says. ♦

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About The Author

Daniel Walters

A lifelong Spokane native, staff writer Daniel Walters is the Inlander's City Hall reporter. But he also reports on a wide swath of other topics, including business, education, real estate development, land use, and other stories throughout North Idaho and Spokane County.He's reported on deep flaws in the Washington...